American Realty Capital was headquartered in Manhattan. The firm now operates as VEREIT Inc. and maintains its headquarters in Phoenix.
NEW YORK CITY—Brian Block, the former chief financial officer of American Realty Capital Partners, was found guilty by a federal jury on Friday of securities fraud by inflating the company’s financial results to deceive investors in 2014.
The 44-year old of Hatfield, PA resident was convicted after a three-week trial of one count of conspiracy to commit securities fraud, one count of securities fraud, two counts of making false filings with the Securities and Exchange Commission and two counts of submitting false certifications along with required filings with the SEC. The securities fraud, false filings charges and false certification charges each carry a maximum prison term of 20 years. The charge of conspiracy carries a maximum prison term of five years, according to the U.S. Attorney’s office.
Block’s co-defendant, former ARCP chief accounting officer Lisa McAlister, pled guilty to securities fraud and related charges on June 29, 2016. According to published reports, McAlister and former ARCP director of financial reporting Ryan Steel testified that they saw Block falsify numbers in 2014. Block was indicted on the federal criminal charges on Sept. 8, 2016, the same day the SEC filed a civil complaint against Block and McAlister.
Mike Miller, an attorney for Block, said that Block would appeal the guilty verdict. Reid Weingarten, another attorney who represented Block, told jurors that Block changed ARCP’s financial numbers because the company had switched its accounting methods for legitimate business reasons, according to a Bloomberg News report.
“As a unanimous jury found today, Brian Block, the former CFO of ARCP, intentionally misled investors by overstating the health and profitability of his company. This trial revealed that when it looked like ARCP would not meet investors’ expectations, Block made up numbers and fudged the books,” stated Acting U.S. Attorney for the Southern District Joon H. Kim. “The integrity of our markets rests on the truth of the financial information provided to investors. And those like Block who lie and manipulate the markets must be identified and held to account.”
American Realty Capital, a publicly-traded REIT, was founded and controlled by investor Nicholas Schorsch and was headquartered in New York City during the period of the alleged securities and accounting fraud. Schorsch no longer is affiliated with the firm that has since relocated to Phoenix and operates as VEREIT Inc. Neither VEREIT nor Schorsch have been charged with any criminal wrongdoing in connection with Block and McAlister’s actions.
The federal government charged at trial that on or about July 28, 2014, after being informed that the company’s previous accounting methods overinflated the ARCP’s financials, Block and McAlister used fraudulent numbers to inflate the (adjusted funds from operations) AFFO and AFFO per share figures that “had no basis in fact, were without documentary support, and did not tie to ARCP’s general ledger accounting system, as Block knew and understood at the time.”
The fraudulent numbers were then incorporated into ARCP’s second quarter 10-Q filed with the SEC on July 29. The U.S. Attorney’s office contends that the fraud resulted in an overstatement of American Realty Capital’s AFFO of approximately $13 million and an intended overstatement of AFFO per share by approximately $0.03, or approximately 5% of total AFFO per share.
American Realty Capital’s stock value plunged after the firm announced on Oct. 29, 2014 that its Audit Committee concluded after an investigation that the company’s 10K report for fiscal year ended Dec. 31, 2013 and quarterly reports on Form 10-Q for the fiscal periods ended March 31, 2014 and June 30, 2014, as well as the company’s earnings releases and other financial communications for these periods, should no longer be relied upon. The company also reported the same day that Block and McAlister had resigned from the company.